FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF RIO VISTA OPERATING PARTNERSHIP L.P.

Limited Partnership Agreement

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PENN OCTANE CORP | RIO VISTA OPERATING PARTNERSHIP L.P. | Rio Vista Operating GP LLC

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Title: FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF RIO VISTA OPERATING PARTNERSHIP L.P.
Governing Law: Delaware Date: 11/10/2004
Industry: Oil and Gas Operations Sector: Energy

FIRST AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

RIO VISTA OPERATING PARTNERSHIP L.P.

<PAGE>

TABLE OF CONTENTS

PAGE

ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . .1

Section 1.2 Construction . . . . . . . . . . . . . . . . . . . . . . .9

ARTICLE II ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . 10

Section 2.1 Formation. . . . . . . . . . . . . . . . . . . . . . . . 10

Section 2.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Section 2.3 Registered Office; Registered Agent; Principal Office;

Other Offices. . . . . . . . . . . . . . . . . . . . . . 10

Section 2.4 Purpose and Business . . . . . . . . . . . . . . . . . . 10

Section 2.5 Powers . . . . . . . . . . . . . . . . . . . . . . . . . 11

Section 2.6 Power of Attorney. . . . . . . . . . . . . . . . . . . . 11

Section 2.7 Term . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Section 2.8 Title to Partnership Assets. . . . . . . . . . . . . . . 12

ARTICLE III RIGHTS OF LIMITED PARTNERS. . . . . . . . . . . . . . . . . . 13

Section 3.1 Limitation of Liability. . . . . . . . . . . . . . . . . 13

Section 3.2 Management of Business . . . . . . . . . . . . . . . . . 13

Section 3.3 Outside Activities of the Limited Partners . . . . . . . 13

Section 3.4 Rights of Limited Partners . . . . . . . . . . . . . . . 13

ARTICLE IV TRANSFERS OF PARTNERSHIP INTERESTS . . . . . . . . . . . . . . 14

Section 4.1 Transfer Generally . . . . . . . . . . . . . . . . . . . 14

Section 4.2 Transfer of General Partner's General Partner

Interest . . . . . . . . . . . . . . . . . . . . . . . . 15

Section 4.3 Transfer of a Limited Partner's Partnership Interest . . 15

Section 4.4 Restrictions on Transfers. . . . . . . . . . . . . . . . 15

ARTICLE V CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS . . 16

Section 5.1 Initial Contributions. . . . . . . . . . . . . . . . . . 16

Section 5.2 Contributions Pursuant to the Contribution Agreement . . 16

Section 5.3 Additional Capital Contributions . . . . . . . . . . . . 16

Section 5.4 Interest and Withdrawal. . . . . . . . . . . . . . . . . 16

Section 5.5 Capital Accounts . . . . . . . . . . . . . . . . . . . . 17

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TABLE OF CONTENTS

(continued)

PAGE

Section 5.6 Loans from Partners. . . . . . . . . . . . . . . . . . . 19

Section 5.7 Issuances of Additional Partnership Securities . . . . . 19

Section 5.8 Limited Preemptive Rights. . . . . . . . . . . . . . . . 20

Section 5.9 Fully Paid and Non-Assessable Nature of Limited

Partner Interests. . . . . . . . . . . . . . . . . . . . 20

ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS. . . . . . . . . . . . . . . . . 21

Section 6.1 Allocations for Capital Account Purposes . . . . . . . . 21

Section 6.2 Allocations for Tax Purposes . . . . . . . . . . . . . . 24

Section 6.3 Distributions. . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE VII MANAGEMENT AND OPERATION OF BUSINESS. . . . . . . . . . . . . 27

Section 7.1 Management . . . . . . . . . . . . . . . . . . . . . . . 27

Section 7.2 Certificate of Limited Partnership . . . . . . . . . . . 29

Section 7.3 Restrictions on the General Partner's Authority. . . . . 29

Section 7.4 Reimbursement of the General Partner . . . . . . . . . . 30

Section 7.5 Outside Activities . . . . . . . . . . . . . . . . . . . 30

Section 7.6 Loans from the General Partner; Loans or

Contributions from the Partnership; Contracts

with Affiliates; Certain Restrictions on the General

Partner. . . . . . . . . . . . . . . . . . . . . . . . . 31

Section 7.7 Indemnification. . . . . . . . . . . . . . . . . . . . . 33

Section 7.8 Liability of Indemnitees . . . . . . . . . . . . . . . . 35

Section 7.9 Resolution of Conflicts of Interest. . . . . . . . . . . 35

Section 7.10 Other Matters Concerning the General Partner . . . . . . 37

Section 7.11 Reliance by Third Parties. . . . . . . . . . . . . . . . 37

ARTICLE VIII BOOKS, RECORDS AND ACCOUNTING. . . . . . . . . . . . . . . . 38

Section 8.1 Records and Accounting . . . . . . . . . . . . . . . . . 38

Section 8.2 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 38

ARTICLE IX TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 38

Section 9.1 Tax Returns and Information. . . . . . . . . . . . . . . 38

Section 9.2 Tax Elections. . . . . . . . . . . . . . . . . . . . . . 39

Section 9.3 Tax Controversies. . . . . . . . . . . . . . . . . . . . 39

Section 9.4 Withholding. . . . . . . . . . . . . . . . . . . . . . . 39

ARTICLE X ADMISSION OF PARTNERS . . . . . . . . . . . . . . . . . . . . . 39

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TABLE OF CONTENTS

(continued)

PAGE

Section 10.1 Admission of Partners. . . . . . . . . . . . . . . . . . 39

Section 10.2 Admission of Substituted Limited Partner . . . . . . . . 40

Section 10.3 Admission of Additional Limited Partners . . . . . . . . 40

Section 10.4 Admission of Successor or Transferee General Partner . . 40

Section 10.5 Amendment of Agreement and Certificate of Limited

Partnership. . . . . . . . . . . . . . . . . . . . . . . 41

ARTICLE XI WITHDRAWAL OR REMOVAL OF PARTNERS. . . . . . . . . . . . . . . 41

Section 11.1 Withdrawal of the General Partner. . . . . . . . . . . . 41

Section 11.2 Removal of the General Partner . . . . . . . . . . . . . 42

Section 11.3 Interest of Departing Partner. . . . . . . . . . . . . . 43

Section 11.4 Withdrawal of a Limited Partner. . . . . . . . . . . . . 43

ARTICLE XII DISSOLUTION AND LIQUIDATION . . . . . . . . . . . . . . . . . 43

Section 12.1 Dissolution. . . . . . . . . . . . . . . . . . . . . . . 43

Section 12.2 Continuation of the Business of the Partnership After

Dissolution. . . . . . . . . . . . . . . . . . . . . . . 44

Section 12.3 Liquidator . . . . . . . . . . . . . . . . . . . . . . . 45

Section 12.4 Liquidation. . . . . . . . . . . . . . . . . . . . . . . 45

Section 12.5 Cancellation of Certificate of Limited Partnership . . . 46

Section 12.6 Return of Contributions. . . . . . . . . . . . . . . . . 46

Section 12.7 Waiver of Partition. . . . . . . . . . . . . . . . . . . 46

Section 12.8 Capital Account Restoration. . . . . . . . . . . . . . . 46

ARTICLE XIII AMENDMENT OF PARTNERSHIP AGREEMENT . . . . . . . . . . . . . 47

Section 13.1 Amendment to be Adopted Solely by the General

Partner. . . . . . . . . . . . . . . . . . . . . . . . . 47

Section 13.2 Amendment Procedures . . . . . . . . . . . . . . . . . . 48

ARTICLE XIV MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Section 14.1 Authority. . . . . . . . . . . . . . . . . . . . . . . . 48

Section 14.2 Procedure for Merger or Consolidation. . . . . . . . . . 48

Section 14.3 Approval by Limited Partners of Merger or

Consolidation. . . . . . . . . . . . . . . . . . . . . . 49

Section 14.4 Certificate of Merger. . . . . . . . . . . . . . . . . . 50

Section 14.5 Effect of Merger . . . . . . . . . . . . . . . . . . . . 50

ARTICLE XV GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 51

Section 15.1 Addresses and Notices. . . . . . . . . . . . . . . . . . 51

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TABLE OF CONTENTS

(continued)

PAGE

Section 15.2 Further Action . . . . . . . . . . . . . . . . . . . . . 51

Section 15.3 Binding Effect . . . . . . . . . . . . . . . . . . . . . 51

Section 15.4 Integration. . . . . . . . . . . . . . . . . . . . . . . 51

Section 15.5 Creditors. . . . . . . . . . . . . . . . . . . . . . . . 51

Section 15.6 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 51

Section 15.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . 51

Section 15.8 Applicable Law . . . . . . . . . . . . . . . . . . . . . 52

Section 15.9 Invalidity of Provisions . . . . . . . . . . . . . . . . 52

Section 15.10 Consent of Partners. . . . . . . . . . . . . . . . . . . 52

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<PAGE>

FIRST AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

RIO VISTA OPERATING PARTNERSHIP L.P.

This FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of RIO

VISTA OPERATING PARTNERSHIP L.P., dated as of September 16, 2004 (this

"Agreement"), is entered into by and between Rio Vista Operating GP LLC, a

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Delaware limited liability company, as the General Partner, Penn Octane

Corporation, a Delaware corporation, and, upon consummation of the transactions

contemplated under Section 5.2 of this Agreement, Rio Vista Energy Partners

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L.P., a Delaware limited partnership, as the Limited Partners, together with any

other Persons who hereafter become Partners in the Partnership or parties hereto

as provided herein. This Agreement amends and restates the Agreement of Limited

Partnership of the Partnership dated July, 10, 2003, in its entirety.

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. The following definitions shall be for all

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purposes, unless otherwise clearly indicated to the contrary, applied to the

terms used in this Agreement. Capitalized terms used herein but not otherwise

defined shall have the meanings assigned to such terms in the MLP Agreement.

"Additional Limited Partner" means a Person admitted to the Partnership as

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a Limited Partner pursuant to Section 10.3 and who is s such on the books and

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records of the Partnership.

"Adjusted Capital Account" means the Capital Account maintained for each

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Partner as of the end of each fiscal year of the Partnership, (a) increased by

any amounts that such Partner is obligated to restore under the standards set by

Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to

restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b)

decreased by (i) the amount of all losses and deductions that, as of the end of

such fiscal year, are reasonably expected to be allocated to such Partner in

subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury

Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions

that, as of the end of such fiscal year, are reasonably expected to be made to

such Partner in subsequent years in accordance with the terms of this Agreement

or otherwise to the extent they exceed offsetting increases to such Partner's

Capital Account that are reasonably expected to occur during (or prior to) the

year in which such distributions are reasonably expected to be made (other than

increases as a result of a minimum gain chargeback pursuant to Section 6.1(d)(i)

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or 6.1(d)(ii)). The foregoing definition of Adjusted Capital Account is intended

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to comply with the provisions of Treasury Regulation Section

1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. The

"Adjusted Capital Account" of a Partner in respect of a General Partner Interest

or any other specified interest in the Partnership shall be the amount that such

Adjusted Capital Account would be if such General Partner Interest or other

interest in the Partnership were the only interest in the Partnership held by

such Partner

<PAGE>

from and after the date on which such General Partner Interest or other interest

in the Partnership was first issued.

"Adjusted Property" means any property the Carrying Value of which has been

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adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii).

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"Affiliate" means, with respect to any Person, any other Person that

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directly or indirectly through one or more intermediaries controls, is

controlled by or is under common control with, the Person in question. As used

herein, the term "control" means the possession, direct or indirect, of the

power to direct or cause the direction of the management and policies of a

Person, whether through ownership of voting securities, by contract or

otherwise.

"Agreed Allocation" means any allocation, other than a Required Allocation,

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of an item of income, gain, loss or deduction pursuant to the provisions of

Section 6.1, including, without limitation, a Curative Allocation (if

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appropriate to the context in which the term "Agreed Allocation" is used).

"Agreed Value" of any Contributed Property means the fair market value of

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such property or other consideration at the time of contribution as determined

by the General Partner using such reasonable method of valuation as it may

adopt. The General Partner shall, in its discretion, use such method as it deems

reasonable and appropriate to allocate the aggregate Agreed Value of Contributed

Properties contributed to the Partnership in a single or integrated transaction

among each separate property on a basis proportional to the fair market value of

each Contributed Property.

"Agreement" means this Agreement of Limited Partnership of Rio Vista

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Operating Partnership L.P., as it may be amended, supplemented restated from

time to time.

"Assets" means all assets conveyed, contributed or otherwise transferred to

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the Partnership Group pursuant to the Contribution Agreement.

"Assignee" means a Person to whom one or more Limited Partner Interests

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have been transferred in a manner permitted under this Agreement, but who has

not been admitted as a Substituted Limited.

"Associate" means, when used to indicate a relationship with any Person,

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(a) any corporation or organization of which such Person is a director, officer

or partner or is, directly or indirectly, the owner of 20% or more of any class

of voting stock or other voting interest; (b) any trust or other estate in which

such Person has at least a 20% beneficial interest or as to which such Person

serves as trustee or in a similar fiduciary capacity; and (c) any relative or

spouse of such Person, or any relative of such spouse, who has the same

principal residence as such Person.

"Available Cash" means, with respect to any Quarter ending prior to the

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Liquidation Date:

<PAGE>

(a) the sum of (i) all cash and cash equivalents of the

Partnership on hand at the end of such Quarter, and (ii) all additional cash and

cash equivalents of the Partnership on hand on the date of determination of

Available Cash with respect to such Quarter resulting from Working Capital

Borrowings made subsequent to the end of such Quarter, less

(b) the amount of any cash reserves that is necessary or

appropriate in the reasonable discretion of the General Partner to (i) provide

for the proper conduct of the business of the Partnership (including reserves

for future capital expenditures and for anticipated future credit needs of the

Partnership) subsequent to such Quarter, (ii) comply with applicable law or any

loan agreement, security agreement, mortgage, debt instrument or other agreement

or obligation to which any Group Member is a party or by which it is bound or

its assets are subject or (iii) provide funds for distributions under Section

6.4 or 6.5 of the MLP Agreement in respect of any one or more of the next four

Quarters; provided, however, that the General Partner may not establish cash

reserves pursuant to (iii) above if the effect of such reserves would be that

the MLP is unable to distribute the Minimum Quarterly Distribution on all Common

Units, plus any Cumulative Common Unit Arrearage on all Common Units, with

respect to such Quarter; and, provided further, that disbursements made by a

Group Member or cash reserves established, increased or reduced after the end of

such Quarter but on or before the date of determination of Available Cash with

respect to such Quarter shall be deemed to have been made, established,

increased or reduced, for purposes of determining Available Cash, within such

Quarter if the General Partner so determines.

Notwithstanding the foregoing, "Available Cash" with respect to the Quarter

in which the Liquidation Date occurs and any subsequent Quarter shall equal

zero.

"Book-Tax Disparity" means with respect to any item of Contributed Property

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or Adjusted Property, as of the date of any determination, the difference

between the Carrying Value of such Contributed Property or Adjusted Property and

the adjusted basis thereof for federal income tax purposes as of such date. A

Partner's share of the Partnership's Book-Tax Disparities in all of its

Contributed Property and Adjusted Property will be reflected by the difference

between such Partner's Capital Account balance as maintained pursuant to Section

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5.5 and the hypothetical balance of such Partner's Capital Account computed as

---

if it had been maintained strictly in accordance with federal income tax

accounting principles.

"Capital Account" means the capital account maintained for a Partner

----------------

pursuant to Section 5.5 . The "Capital Account" of a Partner in respect of a

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General Partner Interest or any other Partnership Interest shall be the amount

that such Capital Account would be if such General Partner Interest or other

specified interest in the Partnership were the only interest in the Partnership

held by such Partner from and after the date on which such General Partner

Interest or other specified interest in the Partnership was first issued.

"Capital Contribution" means any cash, cash equivalents or the Net Agreed

---------------------

Value of Contributed Property that a Partner contributes to the Partnership

pursuant to this Agreement or the Contribution Agreement.

<PAGE>

"Carrying Value" means (a) with respect to a Contributed Property, the

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Agreed Value of such property reduced (but not below zero) by all depreciation,

amortization and cost recovery deductions charged to the Partners' and

Assignees' Capital Accounts in respect of such Contributed Property, and (b)

with respect to any other Partnership property, the adjusted basis of such

property for federal income tax purposes, all as of the time of determination.

The Carrying Value of any property shall be adjusted from time to time in

accordance with Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,

------------------------------------

additions or other adjustments to the Carrying Value for dispositions and

acquisitions of Partnership properties, as deemed appropriate by the General

Partner.

"Certificate of Limited Partnership" means the Certificate of Limited

-------------------------------------

Partnership of the Partnership filed with the Secretary of State of the State of

Delaware as referenced in Section 7.2, as such Certificate of Limited

------------

Partnership may be amended, supplemented or restated from time to time.

"Closing Date" means the first date on which the Registration Statement is

-------------

declared effective by the Commission.

"Code" means the Internal Revenue Code of 1986, as amended and in effect

----

from time to time. Any reference herein to a specific section or sections of the

Code shall be deemed to include a reference to any corresponding provision of

any successor law.

"Commission" means the United States Securities and Exchange Commission.

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"Contributed Property" means each property or other asset, in such form as

---------------------

may be permitted by the Delaware Act, but excluding cash, contributed to the

Partnership. Once the Carrying Value of a Contributed Property is adjusted

pursuant to Section 5.5(d), such property shall no longer constitute a

---------------

Contributed Property, but shall be deemed an Adjusted Property.

"Contribution Agreement" means that certain Contribution, Conveyance and

-----------------------

Assumption Agreement among the Partnership, the MLP General Partner, the MLP,

and Penn Octane Corporation, together with the additional conveyance documents

and instruments contemplated or referenced thereunder.

"Curative Allocation" means any allocation of an item of income, gain,

--------------------

deduction, loss or credit pursuant to the provisions of Section 6.1(d)(ix).

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"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act,

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6 Del. C. Section 17-101 et seq., as amended, supplemented or restated from time

to time, and any successor to such statute.

"Departing Partner" means a former General Partner from and after the

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effective date of any withdrawal or removal of such former General Partner

pursuant to Section 11.1 or 11.2.

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"Distribution" means the distribution of Common Units of the MLP to the

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stockholders of Penn Octane Corporation, as described in the Registration

Statement.

<PAGE>

"Economic Risk of Loss" has the meaning set forth in Treasury Regulation

------------------------

Section 1.752-2(a).

"Event of Withdrawal" has the meaning assigned to such term in Section

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11.1(a).

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"General Partner" means Rio Vista Operating GP LLC and its successors and

----------------

permitted assigns as general partner of the Partnership.

"General Partner Interest" means the ownership interest of the General

--------------------------

Partner in the Partnership (in its capacity as a general partner) and includes

any and all benefits to which the General Partner is entitled as provided in

this Agreement, together with all obligations of the General Partner to comply

with the terms and provisions of this Agreement.

"Group Member" means a member of the Partnership Group.

-------------

"Indemnitee" means (a) the General Partner, (b) any Departing Partner, (c)

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any Person who is or was an Affiliate of the General Partner or any Departing

Partner, (d) any Person who is or was a member, partner, officer, director,

employee, agent or trustee of any Group Member, the General Partner or any

Departing Partner or any Affiliate of any Group Member, the General Partner or

any Departing Partner, and (e) any Person who is or was serving at the request

of the General Partner or any Departing Partner or any Affiliate of the General

Partner or any Departing Partner as an officer, director, employee, member,

partner, agent, fiduciary or trustee of another Person; provided, that a Person

shall not be an Indemnitee by reason of providing, on a fee-for-services basis,

trustee, fiduciary or custodial services.

"Limited Partner" means any Person that is admitted to the Partnership as a

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limited partner pursuant to the terms and conditions of this Agreement; but the

term "Limited Partner" shall not include any Person from and after the time such

Person withdraws as a Limited Partner from the Partnership.

"Limited Partner Interest" means the ownership interest of a Limited

--------------------------

Partner or Assignee in the Partnership and includes any and all benefits to

which such Limited Partner or Assignee is entitled as provided in this

Agreement, together with all obligations of such Limited Partner or Assignee to

comply with the terms and provisions of this Agreement.

"Liquidation Date" means (a) in the case of an event giving rise to the

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dissolution of the Partnership of the type described in clauses (a) and (b) of

the first sentence of Section 12.2, the date on which the applicable time period

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during which the Partners have the right to elect to reconstitute the

Partnership and continue its business has expired without such an election being

made, and (b) in the case of any other event giving rise to the dissolution of

the Partnership, the date on which such event occurs.

"Liquidator" means one or more Persons selected by the General Partner to

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perform the functions described in Section 12.3 as liquidating trustee of the

------------

Partnership within the meaning of the Delaware Act.

"Merger Agreement" has the meaning assigned to such term in Section 14.1.

----------------- ------------

<PAGE>

"MLP" means Rio Vista Energy Partners L.P., a Delaware limited partnership.

---

"MLP Agreement" means the Agreement of Limited Partnership of Rio Vista

--------------

Energy Partners L.P., as it may be amended, supplemented or restated from time

to time.

"MLP General Partner" means Rio Vista GP LLC, a Delaware limited liability

--------------------

company and the general partner of the MLP.

"Net Agreed Value" means, (a) in the case of any Contributed Property, the

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Agreed Value of such property reduced by any liabilities either assumed by the

Partnership upon such contribution or to which such property is subject when

contributed, and (b) in the case of any property distributed to a Partner or

Assignee by the Partnership, the Partnership's Carrying Value of such property

(as adjusted pursuant to Section 5.5(d)(ii)) at the time such property is

-------------------

distributed, reduced by any indebtedness either assumed by such Partner or

Assignee upon such distribution or to which such property is subject at the time

of distribution, in either case, as determined under Section 752 of the Code.

"Net Income" means, for any taxable year, the excess, if any, of the

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Partnership's items of income and gain (other than those items taken into

account in the computation of Net Termination Gain or Net Termination Loss) for

such taxable year over the Partnership's items of loss and deduction (other than

those items taken into account in the computation of Net Termination Gain or Net

Termination Loss) for such taxable year. The items included in the calculation

of Net Income shall be determined in accordance with Section 5.5(b) and shall

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not include any items specially allocated under Section 6.1(d).

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"Net Loss" means, for any taxable year, the excess, if any, of the

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Partnership's items of loss and deduction (other than those items taken into

account in the computation of Net Termination Gain or Net Termination Loss) for

such taxable year over the Partnership's items of income and gain (other than

those items taken into account in the computation of Net Termination Gain or Net

Termination Loss) for such taxable year.

The items included in the calculation of Net Loss shall be determined in

accordance with Section 5.5(b) and shall not include any items specially

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allocated under Section 6.1(d).

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"Net Termination Gain" means, for any taxable year, the sum, if positive,

----------------------

of all items of income, gain, loss or deduction recognized by the Partnership

after the Liquidation Date. The items included in the determination of Net

Termination Gain shall be determined in accordance with Section 5.5(b) and shall

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not include any items of income, gain or loss specially allocated under Section

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6.1(d).

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"Net Termination Loss" means, for any taxable year, the sum, if negative,

----------------------

of all items of income, gain, loss or deduction recognized by the Partnership

after the Liquidation Date. The items included in the determination of Net

Termination Loss shall be determined in accordance with Section 5.5(b) and shall

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not include any items of income, gain or loss specially allocated under Section

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6.1(d).

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<PAGE>

"Nonrecourse Built-in Gain" means with respect to any Contributed

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Properties or Adjusted Properties that are subject to a mortgage or pledge

securing a Nonrecourse Liability, the amount of any taxable gain that would be

allocated to the Partners pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and

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6.2(b)(iii) if such properties were disposed of in a taxable transaction in full

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satisfaction of such liabilities and for no other consideration.

"Nonrecourse Deductions" means any and all items of loss, deduction or

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expenditure (including, without limitation, any expenditure described in Section

705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury

Regulation Section 1.704-2(b), are attributable to a Nonrecourse Liability.

"Nonrecourse Liability" has the meaning set forth in Treasury Regulation

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Section 1.752-1(a)(2).

"OLP Subsidiary" means a Subsidiary of the Partnership.

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"Omnibus Agreement" means that Omnibus Agreement, dated as of the Closing

------------------

Date, among the Partnership, Penn Octane Corporation, the MLP General Partner

and the MLP.

"Opinion of Counsel" means a written opinion of counsel (who may be regular

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counsel to the Partnership or the General Partner or any of its Affiliates)

acceptable to the General Partner in its reasonable discretion.

"Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation

------------------------

Section 1.704-2(b)(4).

"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in

-----------------------------------------

Treasury Regulation Section 1.704-2(i)(2).

"Partner Nonrecourse Deductions" means any and all items of loss, deduction

------------------------------

or expenditure (including, without limitation, any expenditure described in

Section 705(a)(2)(B) of the Code) that, in accordance with the principles of

Treasury Regulation Section 1.704-2(i), are attributable to a Partner

Nonrecourse Debt.

"Partners" means the General Partner and the Limited Partners.

--------

"Partnership" means Rio Vista Operating Partnership L.P., a Delaware

-----------

limited partnership, and any successors thereto.

"Partnership Group" means the Partnership and all OLP Subsidiaries, treated

-----------------

as a single consolidated entity.

"Partnership Interest" means an ownership interest of a Partner in the

---------------------

Partnership, which shall include the General Partner Interest and the Limited

Partner Interest(s).

"Partnership Minimum Gain" means that amount determined in accordance with

-------------------------

the principles of Treasury Regulation Section 1.704-2(d).

<PAGE>

"Partnership Security" means any class or series of equity interest in the

---------------------

Partnership (but excluding any options, rights, warrants and appreciation rights

relating to an equity interest in the Partnership).

"Percentage Interest" means the percentage interest in the Partnership

--------------------

owned by each Partner upon completion of the transactions in Section 5.2 and

-----------

shall mean, (a) as to the General Partner, 0.10% and (b) as to the MLP, 99.90%.

"Person" means an individual or a corporation, limited liability company,

------

partnership, joint venture, trust, unincorporated organization, association,

government agency or political subdivision thereof or other entity.

"Quarter" means, unless the context requires otherwise, a fiscal quarter

-------

(or, with respect to the fiscal quarter during which the Closing Date occurs,

the portion of such fiscal quarter remaining after the Closing Date) of the

Partnership.

"Recapture Income" means any gain recognized by the Partnership (computed

-----------------

without regard to any adjustment required by Section 734 or Section 743 of the

Code) upon the disposition of any property or asset of the Partnership, which

gain is characterized as ordinary income because it represents the recapture of

deductions previously taken with respect to such property or asset.

"Registration Statement" means the Registration Statement on Form 10 (File

-----------------------

No. 0-50394 as it has been or as it may be amended or supplemented from time to

time, filed by the MLP with the Commission under the Securities Act to register

the distribution of the Common Units in the Distribution.

"Required Allocations" means (a) any limitation imposed on any allocation

---------------------

of Net Losses or Net Termination Losses under Section 6.1(b) or 6.1(c)(ii) and

--------------------------------

(b) any allocation of an item of income, gain, loss or deduction pursuant to

---

Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv), 6.1(d)(vii) or 6.1(d)(ix).

--------------------------------------------------------------------------

"Residual Gain" or "Residual Loss" means any item of gain or loss, as the

-------------- -------------

case may be, of the Partnership recognized for federal income tax purposes

resulting from a sale, exchange or other disposition of a Contributed Property

or an Adjusted Property, to the extent such item of gain or loss is not

allocated pursuant to Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to

-------------------------------------

eliminate Book-Tax Disparities.

"Securities Act" means the Securities Act of 1933, as amended, supplemented

--------------

or restated from time to time and any successor to such statute.

"Subsidiary" means, with respect to any Person, (a) a corporation of which

----------

more than 50% of the voting power of shares entitled (without regard to the

occurrence of any contingency) to vote in the election of directors or other

governing body of such corporation is owned, directly or indirectly, at the date

of determination, by such Person, by one or more Subsidiaries of such Person or

a combination thereof, (b) a partnership (whether general or limited) in which

such Person or a Subsidiary of such Person is, at the date of determination, a

general or limited partner

<PAGE>

of such partnership, but only if more than 50% of the partnership interests of

such partnership (considering all of the partnership interests of the

partnership as a single class) is owned, directly or indirectly, at the date of

determination, by such Person, by one or more Subsidiaries of such Person, or a

combination thereof, or (c) any other Person (other than a corporation or a

partnership) in which such Person, one or more Subsidiaries of such Person, or a

combination thereof, directly or indirectly, at the date of determination, has

(i) at least a majority ownership interest or (ii) the power to elect or direct

the election of a majority of the directors or other governing body of such

Person.

"Substituted Limited Partner" means a Person who is admitted as a Limited

-----------------------------

Partner to the Partnership pursuant to Section 10.2 in place of and with all the

------------

rights of a Limited Partner and who is shown as a Limited Partner on the books

and records of the Partnership.

"Surviving Business Entity" has the meaning assigned to such term in

---------------------------

Section 14.2(b).

----------------

"transfer" has the meaning assigned to such term in Section 4.1(a).

-------- --------------

"Unrealized Gain" attributable to any item of Partnership property means,

----------------

as of any date of determination, the excess, if any, of (a) the fair market

value of such property as of such date (as determined under Section 5.5(d)) over

--------------

(b) the Carrying Value of such property as of such date (prior to any adjustment

to be made pursuant to Section 5.5(d) as of such date).

---------------

"Unrealized Loss" attributable to any item of Partnership property means,

----------------

as of any date of determination, the excess, if any, of (a) the Carrying Value

of such property as of such date (prior to any adjustment to be made pursuant to

Section 5.5(d) as of such date) over (b) the fair market value of such property

---------------

as of such date (as determined under Section 5.5(d)).

---------------

"U.S. GAAP" means United States Generally Accepted Accounting Principles

----------

consistently applied.

"Withdrawal Opinion of Counsel" has the meaning assigned to such term in

--------------------------------

Section 11.1(b).

----------------

"Working Capital Borrowings" means borrowings used solely for working

----------------------------

capital purposes or to pay distributions to Partners made pursuant to a credit

facility or other arrangement to the extent such borrowings are required to be

reduced to a relatively small amount each year (or for the year in which the

Distribution is consummated, the 12-month period beginning on the Closing Date)

for an economically meaningful period of time.

Section 1.2 Construction. Unless the context requires otherwise: (a)

------------

any pronoun used in this Agreement shall include the corresponding masculine,

feminine or neuter forms, and the singular form of nouns, pronouns and verbs

shall include the plural and vice versa; (b) references to Articles and Sections

refer to Articles and Sections of this Agreement; and (c) the term "include" or

"includes" means includes, without limitation, and "including" means including,

without limitation.

<PAGE>

ARTICLE II

ORGANIZATION

Section 2.1 Formation. Except as expressly provided to the contrary in

---------

this Agreement, the rights, duties (including fiduciary duties), liabilities and

obligations of the Partners and the administration, dissolution and termination

of the Partnership shall be governed by the Delaware Act. All Partnership

Interests shall constitute personal property of the owner thereof for all

purposes and a Partner has no interest in specific Partnership property.

Section 2.2 Name. The name of the Partnership shall be "Rio Vista

----

Operating Partnership L.P." The Partnership's business may be conducted under

any other name or names deemed necessary or appropriate by the General Partner

in its sole discretion, including the name of the General Partner. The words

"Limited Partnership," "L.P.," "Ltd." or similar words or letters shall be

included in the Partnership's name where necessary for the purpose of complying

with the laws of any jurisdiction that so requires. The General Partner in its

discretion may change the name of the Partnership at any time and from time to

time and shall notify the Limited Partners of such change in the next regular

communication to the Limited Partners.

Section 2.3 Registered Office; Registered Agent; Principal Office;

----------------------------------------------------------

Other Offices. Unless and until changed by the General Partner, the registered

--------------

office of the Partnership in the State of Delaware shall be located at 615 South

DuPont Highway, Dover, DE 19901, and the registered agent for service of process

on the Partnership in the State of Delaware at such registered office shall be

Capitol Services, Inc. The principal office of the Partnership shall be located

at 820 Gessner Road, Suite 1285, Houston, Texas 77024, or such other place as

the General Partner may from time to time designate by notice to the Limited

Partners. The Partnership may maintain offices at such other place or places

within or outside the State of Delaware as the General Partner deems necessary

or appropriate. The address of the General Partner shall be 820 Gessner Road,

Suite 1285, Houston, Texas 77024, or such other place as the General Partner may

from time to time designate by notice to the Limited Partners.

Section 2.4 Purpose and Business. The purpose and nature of the

----------------------

business to be conducted by the Partnership shall be to (a) acquire, manage,

operate and sell the Assets and any similar assets or properties now or

hereafter acquired by the Partnership, (b) engage directly in, or enter into or

form any corporation, partnership, joint venture, limited liability company or

other arrangement to engage indirectly in, any business activity that the

Partnership is permitted to engage in, or any type of business or activity

engaged in by the General Partner prior to the Closing Date and, in connection

therewith, to exercise all of the rights and powers conferred upon the

Partnership pursuant to the agreements relating to such business activity, (c)

engage directly in, or enter into or form any corporation, partnership, joint

venture, limited liability company or other arrangement to engage indirectly in,

any business activity that is approved by the General Partner and that lawfully

may be conducted by a limited partnership organized pursuant to the Delaware Act

and, in connection therewith, to exercise all of the rights and powers conferred

upon the Partnership pursuant to the agreements relating to such business

activity; provided, however, that the General Partner reasonably determines, as

of the date of the acquisition or commencement of such activity, that such

activity (i) generates "qualifying

<PAGE>

income" (as such term is defined pursuant to Section 7704 of the Code) or (ii)

enhances the operations of an activity of the Partnership that generates

qualifying income, and (d) do anything necessary or appropriate to the

foregoing, including the making of capital contributions or loans to a Group

Member, the MLP or any Subsidiary of the MLP. The General Partner has no

obligation or duty to the Partnership, the Limited Partners or the Assignees to

propose or approve, and in its discretion may decline to propose or approve, the

conduct by the Partnership of any business.

Section 2.5 Powers. The Partnership shall be empowered to do any and

------

all acts and things necessary, appropriate, proper, advisable, incidental to or

convenient for the furtherance and accomplishment of the purposes and business

described in Section 2.4 and for the protection and benefit of the Partnership.

-----------

Section 2.6 Power of Attorney.

-------------------

(a) Each Limited Partner and each Assignee hereby constitutes and

appoints the General Partner and, if a Liquidator shall have been selected

pursuant to Section 12.3, the Liquidator (and any successor to the Liquidator by

------------

merger, transfer, assignment, election or otherwise) and each of their

authorized officers and attorneys-in-fact, as the case may be, with full power

of substitution, as its true and lawful agent and attorney-in-fact, with full

power and authority in his name, place and stead, to:

(i) execute, swear to, acknowledge, deliver, file and record

in the appropriate public offices (A) all certificates, documents and other

instruments (including this Agreement and the Certificate of Limited Partnership

and all amendments or restatements hereof or thereof) that the General Partner

or the Liquidator deems necessary or appropriate to form, qualify or continue

the existence or qualification of the Partnership as a limited partnership (or a

partnership in which the limited partners have limited liability) in the State

of Delaware and in all other jurisdictions in which the Partnership may conduct

business or own property; (B) all certificates, documents and other instruments

that the General Partner or the Liquidator deems necessary or appropriate to

reflect, in accordance with its terms, any amendment, change, modification or

restatement of this Agreement; (C) all certificates, documents and other

instruments (including conveyances and a certificate of cancellation) that the

General Partner or the Liquidator deems necessary or appropriate to reflect the

dissolution and liquidation of the Partnership pursuant to the terms of this

Agreement; (D) all certificates, documents and other instruments relating to the

admission, withdrawal, removal or substitution of any Partner pursuant to, or

other events described in, Article IV, X, XI or XII; (E) all certificates,

--------------------------

documents and other instruments relating to the determination of the rights,

preferences and privileges of any class or series of Partnership Interests

issued pursuant hereto; and (F) all certificates, documents and other

instruments (including agreements and a certificate of merger) relating to a

merger or consolidation of the Partnership pursuant to Article XIV; and

------------

(ii) execute, swear to, acknowledge, deliver, file and record

all ballots, consents, approvals, waivers, certificates, documents and other

instruments necessary or appropriate, in the discretion of the General Partner

or the Liquidator, to make, evidence, give, confirm or ratify any vote, consent,

approval, agreement or other action that is made or given by

<PAGE>

the Partners hereunder or is consistent with the terms of this Agreement or is

necessary or appropriate, in the discretion of the General Partner or the

Liquidator, to effectuate the terms or intent of this Agreement; provided, that

when required by any provision of this Agreement that establishes a percentage

of the Limited Partners or of the Limited Partners of any class or series

required to take any action, the General Partner and the Liquidator may exercise

the power of attorney made in this Section 2.6(a)(ii) only after the necessary

------------------

vote, consent or approval of the Limited Partners or of the Limited Partners of

such class or series, as applicable.

Nothing contained in this Section 2.6(a) shall be construed as authorizing

--------------

the General Partner to amend this Agreement except in accordance with Article

-------

XIII or as may be otherwise expressly provided for in this Agreement.

----

(b) The foregoing power of attorney is hereby declared to be

irrevocable and a power coupled with an interest, and it shall survive and, to

the maximum extent permitted by law, not be affected by the subsequent death,

incompetency, disability, incapacity, dissolution, bankruptcy or termination of

any Limited Partner or Assignee and the transfer of all or any portion of such

Limited Partner's or Assignee's Partnership Interest and shall extend to such

Limited Partner's or Assignee's heirs, successors, assigns and personal

representatives. Each such Limited Partner or Assignee hereby agrees to be bound

by any representation made by the General Partner or the Liquidator acting in

good faith pursuant to such power of attorney; and each such Limited Partner or

Assignee, to the maximum extent permitted by law, hereby waives any and all

defenses that may be available to contest, negate or disaffirm the action of the

General Partner or the Liquidator taken in good faith under such power of

attorney. Each Limited Partner or Assignee shall execute and deliver to the

General Partner or the Liquidator, within 15 days after receipt of the request

therefor, such further designation, powers of attorney and other instruments as

the General Partner or the Liquidator deems necessary to effectuate this

Agreement and the purposes of the Partnership.

Section 2.7 Term. The term of the Partnership commenced upon the

----

filing of the Certificate of Limited Partnership in accordance with the Delaware

Act and shall continue in existence until the dissolution of the Partnership in

accordance with the provisions of Article XII. The existence of the Partnership

-----------

as a separate legal entity shall continue until the cancellation of the

Certificate of Limited Partnership as provided in the Delaware Act.

Section 2.8 Title to Partnership Assets. Title to Partnership assets,

---------------------------

whether real, personal or mixed and whether tangible or intangible, shall be

deemed to be owned by the Partnership as an entity, and no Partner or Assignee,

individually or collectively, shall have any ownership interest in such

Partnership assets or any portion thereof. Title to any or all of the

Partnership assets may be held in the name of the Partnership, the General

Partner, one or more of its Affiliates or one or more nominees, as the General

Partner may determine. The General Partner hereby declares and warrants that any

Partnership assets for which record title is held in the name of the General

Partner or one or more of its Affiliates or one or more nominees shall be held

by the General Partner or such Affiliate or nominee for the use and benefit of

the Partnership in accordance with the provisions of this Agreement; provided,

however, that the General Partner shall use reasonable efforts to cause record

title to such assets (other than those assets in respect of which the General

Partner determines that the expense and difficulty of

<PAGE>

conveyancing makes transfer of record title to the Partnership impracticable) to

be vested in the Partnership as soon as reasonably practicable; provided,

further, that, prior to any withdrawal or removal of the General Partner or as

soon thereafter as practicable, the General Partner shall use reasonable efforts

to effect the transfer of record title to the Partnership and, prior to any such

transfer, will provide for the use of such assets in a manner satisfactory to

the General Partner. All Partnership assets shall be recorded as the property of

the Partnership in its books and records, irrespective of the name in which

record title to such Partnership assets is held.

ARTICLE III

RIGHTS OF LIMITED PARTNERS

Section 3.1 Limitation of Liability. The Limited Partners and the

-------------------------

Assignees shall have no liability under this Agreement except as expressly

provided in this Agreement or the Delaware Act.

Section 3.2 Management of Business. No Limited Partner or Assignee, in

----------------------

its capacity as such, shall participate in the operation, management or control

(within the meaning of the Delaware Act) of the Partnership's business, transact

any business in the Partnership's name or have the power to sign documents for

or otherwise bind the Partnership. Any action taken by any Affiliate of the

General Partner or any officer, director, employee, manager, member, general

partner, agent or trustee of the General Partner or any of its Affiliates, or

any officer, director, employee, manager, member, general partner, agent or

trustee of a Group Member, in its capacity as such, shall not be deemed to be

participation in the control of the business of the Partnership by a limited

partner of the Partnership (within the meaning of Section 17-303(a) of the

Delaware Act) and shall not affect, impair or eliminate the limitations on the

liability of the Limited Partners or Assignees under this Agreement.

Section 3.3 Outside Activities of the Limited Partners. Subject to the

------------------------------------------

provisions of Article II and the Omnibus Agreement, which shall continue to be

----------

applicable to the Persons referred to therein, regardless of whether such

Persons shall also be Limited Partners or Assignees, any Limited Partner or

Assignee shall be entitled to and may have business interests and engage in

business activities in addition to those relating to the Partnership, including

business interests and activities in direct competition with the Partnership

Group. Neither the Partnership nor any of the other Partners or Assignees shall

have any rights by virtue of this Agreement in any business ventures of any

Limited Partner or Assignee.

Section 3.4 Rights of Limited Partners.

-----------------------------

(a) In addition to other rights provided by this Agreement or by

applicable law, and except as limited by Section 3.4(b), each Limited Partner

--------------

shall have the right, for a purpose reasonably related to such Limited Partner's

interest as a limited partner in the Partnership, upon reasonable written demand

and at such Limited Partner's own expense:

(i) promptly after becoming available, to obtain a copy of

the Partnership's federal, state and local income tax returns for each year;

<PAGE>

(ii) to have furnished to him a current list of the name and

last known business, residence or mailing address of each Partner;

(iii) to have furnished to him a copy of this Agreement and

the Certificate of Limited Partnership and all amendments thereto, together with

a copy of the executed copies of all powers of attorney pursuant to which this

Agreement, the Certificate of Limited Partnership and all amendments thereto

have been executed;

(iv) to obtain true and full information regarding the amount

of cash and a description and statement of the Net Agreed Value of any other

Capital Contribution by each Partner and that each Partner has agreed to

contribute in the future, and the date on which each became a Partner; and

(v) to obtain such other information regarding the affairs of

the Partnership as is just and reasonable; and

(vi) to obtain true and full information regarding the status

of the business and financial condition of the Partnership.

(b) The General Partner may keep confidential from the Limited

Partners and Assignees, for such period of time as the General Partner deems

reasonable, (i) any information that the General Partner reasonably believes to

be in the nature of trade secrets or (ii) other information the disclosure of

which the General Partner in good faith believes (A) is not in the best

interests of the MLP or the Partnership Group, (B) could damage the MLP or the

Partnership Group or (C) that any Group Member is required by law or by

agreement with any third party to keep confidential (other than agreements with

Affiliates of the Partnership the primary purpose of which is to circumvent the

obligations set forth in this Section 3.4).

------------

ARTICLE IV

TRANSFERS OF PARTNERSHIP INTERESTS

Section 4.1 Transfer Generally.

-------------------

(a) The term "transfer," when used in this Agreement with respect

to a Partnership Interest, shall be deemed to refer to a transaction by which a

General Partner assigns its General Partner Interest to another Person who

becomes the General Partner or by which the holder of a Limited Partner Interest

assigns such Limited Partner Interest to another Person who is or becomes a

Limited Partner (or an Assignee), and includes a sale, assignment, gift, pledge,

encumbrance, hypothecation, mortgage, exchange or any other disposition by law

or otherwise.

(b) No Partnership Interest shall be transferred, in whole or in

part, except in accordance with the terms and conditions set forth in this

Article IV. Any transfer or purported transfer of a Partnership Interest not

-----------

made in accordance with this Article IV shall be null and void.

-----------

<PAGE>

prevent a disposition by any member of the General Partner of any or all of the

issued and outstanding member interests of the General Partner.

Section 4.2 Transfer of General Partner's General Partner Interest. No

------------------------------------------------------

provision of this Agreement shall be construed to prevent (and the Limited

Partners do hereby expressly consent to) (i) the transfer by the General Partner

of all or a portion of its General Partner Interest to one or more Affiliates,

which transferred General Partner Interest, to the extent not transferred to a

successor General Partner, shall constitute a Limited Partner Interest or (ii)

the transfer by the General Partner, in whole and not in part, of its General

Partner Interest upon (a) its merger, consolidation or other combination into

any other Person or the transfer by it of all or substantially all of its assets

to another Person or (b) sale of all or substantially all of the membership

interests of the General Partner by its members if, in the case of a transfer

described in either clause (i) or (ii) of this sentence, the rights and duties

of the General Partner with respect to the General Partner Interest so

transferred are assumed by the transferee and the transferee agrees to be bound

by the provisions of this Agreement; provided, however, that in either such

case, the transferee is primarily controlled, directly or indirectly, by the MLP

or the MLP General Partner or any Person primarily controlling, directly or

indirectly, the MLP or the MLP General Partner; provided, further, that in

either such case, such transferee furnishes to the Partnership an Opinion of

Counsel that such merger, consolidation, combination, transfer or assumption

will not result in a loss of limited liability of any Limited Partner or cause

the Partnership to be taxable as a corporation or otherwise to be taxed as an

entity for federal income tax purposes (to the extent not already so treated or

taxed). In the case of a transfer pursuant to this Section 4.2 to a Person

-----------

proposed as a successor general partner of the Partnership, the transferee or

successor (as the case may be) shall, subject to compliance with the terms of

Section 10.4, be admitted to the Partnership as the General Partner immediately

-------------

prior to the transfer of the Partnership Interest, and the business of the

Partnership shall continue without dissolution.

Section 4.3 Transfer of a Limited Partner's Partnership Interest. A

------------------------------------------------------

Limited Partner may transfer all, but not less than all, of its Partnership

Interest as a Limited Partner in connection with the merger, consolidation or

other combination of such Limited Partner with or into any other Person or the

transfer by such Limited Partner of all or substantially all of its assets to

another Person and, following any such transfer, such Person may become a

Substituted Limited Partner pursuant to Article X. Except as set forth in the

---------

immediately preceding sentence, or in connection with any pledge of (or any

related foreclosure on) a Partnership Interest of a Limited Partner solely for

the purpose of securing, directly or indirectly, indebtedness of the Partnership

or the MLP, a Limited Partner may not transfer all or any part of its

Partnership Interest or withdraw from the Partnership.

Section 4.4 Restrictions on Transfers.

---------------------------

(a) Notwithstanding the other provisions of this Article IV, no

----------

transfer of any Partnership Interest shall be made if such transfer would (i)

violate the then applicable federal or state securities laws or the rules and

regulations of the Commission, any state securities commission or any other

governmental authority with jurisdiction over such transfer, (ii)

<PAGE>

terminate the existence or qualification of the Partnership or the MLP under the

laws of the jurisdiction of its formation or (iii) cause the Partnership or the

MLP to be treated as an association taxable as a corporation or otherwise to be

taxed as an entity for federal income tax purposes (to the extent not already so

treated or taxed).

(b) The General Partner may impose restrictions on the transfer of

Partnership Interests if a subsequent Opinion of Counsel determines that such

restrictions are necessary to avoid a significant risk of the Partnership or the

MLP becoming taxable as a corporation or otherwise to be taxed as an entity for

federal income tax purposes. The restrictions may be imposed by making such

amendments to this Agreement as the General Partner may determine to be

necessary or appropriate to impose such restrictions.

ARTICLE V

CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS

Section 5.1 Initial Contributions. In connection with the formation of

---------------------

the Partnership under the Delaware Act, the General Partner purchased a 0.10%

General Partner Interest for $1.00 and was admitted as General Partner, and Penn

Octane Corporation purchased a 99.9% Limited Partner Interest in the Partnership

for $999.00 and was admitted as a Limited Partner.

Section 5.2 Contributions Pursuant to the Contribution Agreement.

---------------------------------------------------------

(a) Pursuant to the Contribution Agreement, Penn Octane

Corporation shall contribute to the Partnership all of its right, title and

interest in the Assets as a Capital Contribution.

(b) Penn Octane Corporation then, pursuant to the Contribution

Agreement, shall contribute its 99.9% Limited Partner Interest in the

Partnership to the MLP as a capital contribution.

continue to own a 0.10% General Partner Interest, the MLP will own a 99.9%

Limited Partner Interest and shall be admitted as a Limited Partner and Penn

Octane Corporation shall no longer own any Partnership Interest and shall

withdraw as a Limited Partner.

Section 5.3 Additional Capital Contributions. With the consent of the

--------------------------------

General Partner, any Limited Partner may, but shall not be obligated to, make

additional Capital Contributions to the Partnership. Contemporaneously with the

making of any Capital Contributions by a Limited Partner, in addition to those

provided in Sections 5.1 and 5.2, the General Partner shall be obligated to make

--------------------

an additional Capital Contribution to the Partnership in an amount equal to 0.10

divided by 99.9 times the amount of the additional Capital Contribution then

made by such Limited Partner. Except as set forth in the immediately preceding

sentence and in Article XII, the General Partner shall not be obligated to make

-----------

any additional Capital Contributions to the Partnership.

<PAGE>

Section 5.4 Interest and Withdrawal. No interest shall be paid by the

-----------------------

Partnership on Capital Contributions. No Partner or Assignee shall be entitled

to the withdrawal or return of its Capital Contribution, except to the extent,

if any, that distributions made pursuant to this Agreement or upon termination

of the Partnership may be considered as such by law and then only to the extent

provided for in this Agreement. Except to the extent expressly provided in this

Agreement, no Partner or Assignee shall have priority over any other Partner or

Assignee either as to the return of Capital Contributions or as to profits,

losses or distributions. Any such return shall be a compromise to which all

Partners and Assignees agree within the meaning of Section 17-502(b) of the

Delaware Act.

Section 5.5 Capital Accounts.

-----------------

(a) The Partnership shall maintain for each Partner (or a

beneficial owner of Partnership Interests held by a nominee in any case in which

the nominee has furnished the identity of such owner to the Partnership in

accordance with Section 6031(c) of the Code or any other method acceptable to

the General Partner in its sole discretion) owning a Partnership Interest a

separate Capital Account with respect to such Partnership Interest in accordance

with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital

Account shall be increased by (i) the amount of all Capital Contributions made

to the Partnership with respect to such Partnership Interest pursuant to this

Agreement and (ii) all items of Partnership income and gain (including, without

limitation, income and gain exempt from tax) computed in accordance with Section

-------

5.5(b) and allocated with respect to such Partnership Interest pursuant to

------

Section 6.1, and decreased by (x) the amount of cash or Net Agreed Value of all

------------

actual and deemed distributions of cash or property made with respect to such

Partnership Interest pursuant to this Agreement and (y) all items of Partnership

deduction and loss computed in accordance with Section 5.5(b) and allocated with

--------------

respect to such Partnership Interest pursuant to Section 6.1.

------------

(b) For purposes of computing the amount of any item of income,

gain, loss or deduction that is to be allocated pursuant to Article VI and is to

----------

be reflected in the Partners' Capital Accounts, the determination, recognition

and classification of any such item shall be the same as its determination,

recognition and classification for federal income tax purposes (including,

without limitation, any method of depreciation, cost recovery or amortization

used for that purpose), provided, that:

(i) Solely for purposes of this Section 5.5, the Partnership

-----------

shall be treated as owning directly its proportionate share (as determined by

the General Partner) of all property owned by any OLP Subsidiary that is

classified as a partnership for federal income tax purposes.

(ii) All fees and other expenses incurred by the Partnership

to promote the sale of (or to sell) a Partnership Interest that can neither be

deducted nor amortized under Section 709 of the Code, if any, shall, for

purposes of Capital Account maintenance, be treated as an item of deduction at

the time such fees and other expenses are incurred and shall be allocated among

the Partners pursuant to Section 6.1.

------------

<PAGE>

(iii) Except as otherwise provided in Treasury Regulation

Section 1.704-1(b)(2)(iv)(m), computation of all items of income, gain, loss and

deduction shall be made without regard to any election under Section 754 of the

Code that may be made by the Partnership and, as to those items described in

Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact

that such items are not includable in gross income or are neither currently

deductible nor capitalized for federal income tax purposes. To the extent an

adjustment to the adjusted tax basis of any Partnership asset pursuant to

Section 734(b) or 743(b) of the Code is required, pursuant to Treasury

Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining

Capital Accounts, the amount of such adjustment in the Capital Accounts shall be

treated as an item of gain or loss.

(iv) Any income, gain or loss attributable to the taxable

disposition of any Partnership property shall be determined as if the adjusted

basis of such property as of such date of disposition were equal in amount to

the Partnership's Carrying Value with respect to such property as of such date.

(v) In accordance with the requirements of Section 704(b) of

the Code, any deductions for depreciation, cost recovery or amortization

attributable to any Contributed Property shall be determined as if the adjusted

basis of such property on the date it was acquired by the Partnership were equal

to the Agreed Value of such property. Upon an adjustment pursuant to Section

-------

5.5(d) to the Carrying Value of any Partnership property subject to

------

depreciation, cost recovery or amortization, any further deductions for such

depreciation, cost recovery or amortization attributable to such property shall

be determined (A) as if the adjusted basis of such property were equal to the

Carrying Value of such property immediately following such adjustment and (B)

using a rate of depreciation, cost recovery or amortization derived from the

same method and useful life (or, if applicable, the remaining useful life) as is

applied for federal income tax purposes; provided, however, that, if the asset

has a zero adjusted basis for federal income tax purposes, depreciation, cost

recovery or amortization deductions shall be determined using any reasonable

method that the General Partner may adopt.

(vi) If the Partnership's adjusted basis in a depreciable or

cost recovery property is reduced for federal income tax purposes pursuant to

Section 48(q)(1) or 48(q)(3) of the Code, the amount of such reduction shall,

solely for purposes hereof, be deemed to be an additional depreciation or cost

recovery deduction in the year such property is placed in service and shall be

allocated among the Partners pursuant to Section 6.1. Any restoration of such

-----------

basis pursuant to Section 48(q)(2) of the Code shall, to the extent possible, be

allocated in the same manner to the Partners to whom such deemed deduction was

allocated.

rata portion of the Capital Account of the transferor relating to the

Partnership Interest so transferred.

(d) (i) In accordance with Treasury Regulation Section

1.704-1(b)(2)(iv)(f), on an issuance of additional Partnership Interests for

cash or Contributed Property, the Capital Accounts of all Partners and the

Carrying Value of each Partnership property immediately prior to such issuance

shall be adjusted upward or downward to reflect any Unrealized Gain or

Unrealized Loss attributable to such Partnership property, as if such

<PAGE>

Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each

such property immediately prior to such issuance and had been allocated to the

Partners at such time pursuant to Section 6.1 in the same manner as any item of

-----------

gain or loss actually recognized during such period would have been allocated.

In determining such Unrealized Gain or Unrealized Loss, the aggregate cash

amount and fair market value of all Partnership assets (including, without

limitation, cash or cash equivalents) immediately prior to the issuance of

additional Partnership Interests shall be determined by the General Partner

using such reasonable method of valuation as it may adopt; provided, however,

that the General Partner, in arriving at such valuation, must take fully into

account the fair market value of the Partnership Interests of all Partners at

such time. The General Partner shall allocate such aggregate value among the

assets of the Partnership (in such manner as it determines in its discretion to

be reasonable) to arrive at a fair market value for individual properties.

(i) In accordance with Treasury Regulation Section

1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to

a Partner of any Partnership property (other than a distribution of cash that is

not in redemption or retirement of a Partnership Interest), the Capital Accounts

of all Partners and the Carrying Value of all Partnership property shall be

adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss

attributable to such Partnership property, as if such Unrealized Gain or

Unrealized Loss had been recognized in a sale of such property immediately prior

to such distribution for an amount equal to its fair market value, and had been

allocated to the Partners, at such time, pursuant to Section 6.1(c) in the same

--------------

manner as any item of gain or loss actually recognized during such period would

have been allocated. In determining such Unrealized Gain or Unrealized Loss the

aggregate cash amount and fair market value of all Partnership assets

(including, without limitation, cash or cash equivalents) immediately prior to a

distribution shall (A) in the case of an actual distribution that is not made

pursuant to Section 12.4 or in the case of a deemed distribution, be determined

------------

and allocated in the same manner as that provided in Section 5.5(d)(i) or (B) in

----------------

the case of a liquidating distribution pursuant to Section 12.4, be determined

------------

and allocated by the Liquidator using such reasonable method of valuation as it

may adopt.

Section 5.6 Loans from Partners. Loans by a Partner to the Partnership

-------------------

shall not constitute Capital Contributions. If any Partner shall advance funds

to the Partnership in excess of the amounts required hereunder to be contributed

by it to the capital of the Partnership, the making of such excess advances

shall not result in any increase in the amount of the Capital Account of such

Partner. The amount of any such excess advances shall be a debt obligation of

the Partnership to such Partner and shall be payable or collectible only out of

the Partnership assets in accordance with the terms and conditions upon which

such advances are made.

Section 5.7 Issuances of Additional Partnership Securities.

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(a) The Partnership may issue additional Partnership Securities

and options, rights, warrants and appreciation rights relating to the

Partnership Securities for any Partnership purpose at any time and from time to

time to such Persons for such consideration and on such terms and conditions as

shall be established by the General Partner in its sole discretion. The

<PAGE>

issuance by the Partnership of Partnership Securities or rights, warrants or

appreciation rights in respect thereof shall be deemed an amendment to this

Agreement.

(b) Each additional Partnership Security authorized to be issued

by the Partnership pursuant to Section 5.7(a) may be issued in one or more

---------------

classes, or one or more series of any such classes, with such designations,

preferences, rights, powers and duties (which may be senior to existing classes

and series of Partnership Securities), as shall be fixed by the General Partner

in its sole discretion, including (i) the right to share Partnership profits and

losses or items thereof; (ii) the right to share in Partnership distributions;

(iii) the rights upon dissolution and liquidation of the Partnership; (iv)

whether, and the terms and conditions upon which, the Partnership may redeem

such Partnership Security; (v) whether such Partnership Security is issued with

the privilege of conversion or exchange and, if so, the terms and conditions of

such conversion or exchange; (vi) the terms and conditions upon which each

Partnership Security will be issued, evidenced by certificates and assigned or

transferred; and (vii) the right, if any, of the holder of each such Partnership

Security to vote on Partnership matters, including matters relating to the

relative designations, preferences, rights, powers and duties of such

Partnership Security.

all actions that it deems necessary or appropriate in connection with (i) each

issuance of Partnership Securities and options, rights, warrants and

app

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